January 2015

U.S. District Judge Ronnie Greer sentenced five people to prison terms in federal court in Greeneville, Tennessee, this week for conspiring to commit Clean Air Act offenses in connection with the illegal removal and disposal of asbestos-containing materials at the former Liberty Fibers Plant in Hamblen County, Tennessee, the Justice Department announced. A&E Salvage had purchased the plant out of bankruptcy in order to salvage metals which remained in the plant after it ceased operations.

U.S. District Judge Greer sentenced Mark Sawyer, 55, of Morristown, Tennessee, a former manager of A&E Salvage, to the statutory maximum of five years in prison, to be followed by two years of supervised release. A&E Salvage manager Newell Lynn Smith, 59, of Miami, Florida, was sentenced to 37 months and two years of supervised release. A&E Salvage Manager Eric Gruenberg, 50, of Lebanon, Tennessee, received a 28-month sentence. Armida, 56, and Milto DiSanti, 54, of Miami, Florida, each received sentences of six months in prison, to be followed by six months of home confinement. The judge ordered all the defendants to pay restitution of more than $10.3 million, which will be returned to Environmental Protection Agency's (EPA) Superfund, which was used to clean up the plant site contamination.

According to court documents, all the defendants pleaded guilty to one criminal felony count for conspiring to violate the Clean Air Act's "work practice standards" salient to the proper stripping, bagging, removal and disposal of asbestos. According to the EPA, the individuals engaged in a multi-year scheme in which substantial amounts of regulated asbestos containing materials were removed the former Liberty Fibers plant without removing all asbestos prior to demolition and stripping, bagging, removing and disposing of such asbestos in illegal manners and without providing workers the necessary protective equipment.

While managing asbestos in renovations and demolition projects can be challenging from an environmental and worker safety perspective, there clearly is a right way to do it and a wrong way. This case serves as a good reminder that taking shortcuts to save time and/or money has significant consequences.

A corporation's main objective, and many would agree legal obligation, is to make money and maximize profits for its shareholders, but should more be asked or required of today's successful businesses? For an ever increasing segment of society, the answer without a doubt is "yes." The concept, commonly referred to as corporate social responsibility (CSR), extends beyond compliance with legal mandates or even charitable donations and good deeds. CSR advocates believe a company has a clear duty of care to all stakeholders connected to or impacted by a company's operation.

A new article, The Business Case for Environmental Sustainability, published this week in the American Bar Association's Business Law Today, by E. Lynn Grayson and Gary P. Kjelleren, addresses these considerations. The article examines environmental sustainability and why it matters for business. The authors detail key environmental sustainability focus areas and outline a roadmap of essential considerations companies should incorporate into any environmental stewardship initiatives. Lastly, they conclude that there is a business case for environmental sustainability that will improve financial performance.

The authors conclude there is a business case for environmental sustainability in the context of corporate social responsibility. In closing, they note: "It appears a virtual certainty that environmental sustainability will increasingly move from voluntary to legally mandated initiatives including sustainability reporting requirements. The critical inquiry for business is no longer if, but how and when to launch a meaningful environmental sustainability program. There is a growing business case for environmental sustainability. It is an added bonus that addressing these business challenges not only will enhance financial performance over time, but is simply the right thing to do as well."

On January 12, 2015, California's Office of Environmental Health Hazard Assessment ("OEHHA") proposed modifications to California's controversial Proposition 65 regulations. As any company that does business in California should know, Proposition 65 requires that a warning be provided for any product that contains one of hundreds of chemicals identified on the Proposition 65 list if there is any risk of a person being exposed to the listed chemical above a specified threshold. As a result, one is bombarded with Proposition 65 warnings from the point one disembarks onto the jet bridge until the time one arrives at his/her hotel and orders room service. OEHHA's proposed amendments to Proposition 65 appear to do little to ease the regulatory burden on companies that do business in California and/or minimize the burden of having to read all of the Proposition 65 warnings.

Overview of Proposed Changes

Warnings Must Now Identify Specific Chemicals: OEHHA has listed the following 12 chemicals which must be identified by name in any Proposition 65 warning: Acrylamide; Arsenic; Benzene; Cadmium; Carbon Monoxide; Chlorinated Tris; Formaldehyde; Hexavalent Chromium; Lead; Mercury; Methylene Chloride; and Phthalates.

Modified "Safe Harbor" Language: In order to avail oneself of the "safe harbor" warning, the warning must state that a product "can expose you" to a chemical or chemicals as opposed to the old "safe harbor" language that merely required that the warning state that the product "contains a chemical" that is known to the State to cause cancer or reproductive toxicity. In addition, for the following consumer products and services, specific warnings would be required: food and dietary supplements; alcoholic beverages; restaurant foods and non-alcoholic beverages; prescription drugs; dental care; furniture; diesel engine exhaust; parking facilities; amusement parks; designated smoking areas; petroleum products; service station and vehicle repair facilities.

New Lead Agency Website: The proposed regulations would also create a new section on the OEHHA website that would provide detailed information on products and exposures. OEHHA would also have the authority to request that businesses provide more detailed information, including estimated levels of exposure for listed chemicals.

Limited Responsibility for Retailers: Retailers would be relieved from Proposition 65 liability in most circumstances and the responsibility for providing the requisite Proposition 65 warning would fall squarely on the manufacturer, distributer, producer and/or packager.

OEHHA will be accepting written comments on the proposed changes until April 8, 2015. Not surprisingly, OEHHA's proposed regulations have not been warmly received by industry and it is expected that affected businesses and trade associations will be submitting comments in opposition to these proposed amendments. Please click here and here to see the text of the proposed amendments.

The World Bank sold $91 million in green bonds tied to an index of "ethical" companies – its largest offering of green bonds linked to an equity index and the first offered to individual investors.

Green bonds were created to increase funding by accessing the $80 trillion bond market and expanding the investor base for climate-friendly projects worldwide. They are fixed income, liquid financial instruments that are easy to understand, and the funds green bonds raise are dedicated exclusively to climate-mitigation and adaption projects, and other environmentally beneficial activities. This provides investors an attractive investment proposition as well as an opportunity to support environmentally sound projects, according to the World Bank.

The World Bank Treasury issued its first green bond in 2008, at a time when investors didn't have liquid, fixed income investment options that specifically supported climate-focused and environmentally-friendly projects. The World Bank has since issued more than US$7 billion in green bonds in 17 currencies, including a new green growth bond linked to an equity index and designed for retail investors. Separately, the International Finance Corporation (IFC) has issued US$3.7 billion, including two US$1 billion green bond sales in 2013. Proceeds form World Bank and IFC green bonds are used to support renewable energy, energy efficiency, sustainable transportation and other low-carbon projects, as well as financing for forest and watershed management, and infrastructure to prevent climate-related flood damage and build climate resilience.

The two institutions – whose AAA/Aaa ratings provide security for investors and development mandate and safeguards provide assurance for the use of proceeds and impact – have helped pioneer the green bond market, expand the investor base, and raise awareness about the needs and opportunities for climate-friendly investment.

The latest securities, which don't pay a coupon, are linked to the performance of the Ethical Europe Equity Index, a group of European companies that have no involvement in weapons, gambling, tobacco or nuclear energy. The seven-year notes were sold in $100 denominations to individuals in Belgium and Luxembourg, according to a World Bank statement.

The Washington-based lender, founded in 1944 with the goal of aiding post-war reconstruction, issued its first debt securities in 1947 and has sold more than $7 billion of green bonds in 78 deals. Global issuance of the securities, which are used to fund environmentally friendly projects, rose to a record last year, with $32.6 billion sold through October 24, according to data compiled by Bloomberg. Pension funds that are required to invest in sustainable assets have helped to fuel demand, according to Bloomberg New Energy Finance.

The Climate Bonds Initiative (CBI) also recently reported that the green bond market saw it biggest year yet in 2014. CBI has reported that almost $37 billion worth of labeled green bonds were issued in 2014--this figure is consistent with estimates also released by Bloomberg New Energy Finance.

According to the World Bank, the fastest growing cities and developing countries face increasing financial challenge from climate change. The green bond is a climate friendly investment developed to provide much needed funding to address climate change related impacts, primarily by governmental entities.

According to the lawsuit recently filed in the U.S. District Court for the District of Columbia, EPA conducted rulemaking in the 1996-1997 time frame to consider adding other industry sectors to the list of facilities required to complete TRI reporting. At that time, EPA concluded that "oil and gas extraction classified in SIC code 13 is believed to conduct significant management activities that involve EPCRA Section 313 chemicals." EPA did not regulate the oil and gas industry following these earlier rulemaking efforts and for that reason, in 2012, environmental groups petitioned EPA to initiate rulemaking to add the oil and gas industry to TRI reporting requirements. The lawsuit alleges that EPA has not responded to that petition.

The environmental groups also allege that 127 tons of hazardous air pollutants are released by the oil and gas industry annually as well as other releases to the environment through discharges to surface waters, contamination of groundwater, underground injection and disposal in landfills. The lawsuit contends that regulation of the oil and gas industry is even more important today given the expansion of hydraulic fracturing and horizontal drilling.

The oil and gas industry has concluded that TRI requirements never were intended to cover such facilities given the few employees typically involved in these operations and the multitude of other regulations applicable to the oil and gas industry. They also look to the 1996-1997 rulemaking effort but with a different recollection recalling that EPA confirmed at that time that "…This industry group is unique in that it may have related activities located over significantly large geographic areas. While together these activities may involve the management of significant quantities of EPCRA section 313 chemicals in addition to requiring significant employee involvement, taken at the smallest unit (individual well), neither the employee nor the chemical thresholds are likely to be met." Industry advocates have criticized these environmental groups, and particularly the Environmental Integrity Project, for attempting to manipulate data in order to oppose oil and gas development and seeking to impose additional regulatory requirements on an industry already heavily regulated.

The TRI program is an expansive regulatory initiative that mandates annual reporting obligations for certain facilities that fall within specific industry sectors, have 10 or more full time employees and manufacture or process 25,000 pounds of toxic chemicals subject to EPCRA Section 313 or otherwise use 10,000 pounds of these same chemicals in any given year. It is typically the case that many of the oil and gas extraction operations would not meet these reporting thresholds as previously concluded by EPA. It appears, however, that this issue may be debated once again in the context of this case.

On December 12, 2014, the Senate approved H.R. 3979, the National Defense Authorization Act for FY 2015. Buried in this bill are provisions that provide CERCLA immunity to the United States for three parcels of property that are being transferred to municipalities in Idaho and Nevada. The parcels at issues are being transferred from the United States Department of the Interior. Although the United States Environmental Protection Agency ("U.S. EPA") has generally opposed legislation that would exempt the United States from CERCLA liability, there is no indication that U.S EPA formally opposed the liability exemptions contained in H.R. 3979. The President signed the bill into law on December 19, 2014.

It is unclear whether the exemptions contained in H.R. 3979 represent an one-off event or are a precursor to future Congressional efforts to exempt the United States from CERCLA liability. Please click here to see a copy of H.R. 3979.

ExxonMobil Corp. (Exxon) operates a refinery complex in Baytown, Texas, which is the largest petroleum and petrochemical complex in the U.S. This Complex is governed by Title V operating permits issued by the Texas Commission on Environmental Quality (TCEQ). In a 2010 citizen lawsuit, Environmental Texas Citizen Lobby Inc. and the Sierra Club alleged that, since 2005, equipment breakdowns, malfunctions and other non-routine incidents at the Complex caused illegal emissions of benzene, hydrogen chlorides, sulfur dioxide, hydrogen sulfide, carbon monoxide, and other substances. Plaintiffs sought $641 million in damages. On December 17, 2014, the District Court declined to impose any penalty, finding that the $1.4 million penalty and stipulation on future corrective action that Exxon previously agreed to with TCEQ was sufficient.

The case illustrates that a proactive EHS effort can pay real dividends in defending against citizen suits or enforcement actions, even if the number of violations are not in the company’s favor. By way of background, all parties stipulated to Exxon’s indications of noncompliance, described as:

241 “reportable emissions events” (i.e., those events “that release greater than a certain threshold quantity of pollutants” and are reported to TCEQ);

3,735 “recordable emissions events” (i.e., those events “that release less than the aforementioned threshold quantity of pollutants” but are not reported to TCEQ); and

901 Title V deviations.

TCEQ investigates all reportable emissions events. After investigating, TCEQ assessed about $1.1 million in penalties against Exxon, and Harris County assessed about $0.3 million in penalties. Furthermore, in 2012, TCEQ and Exxon entered into an agreed enforcement order, which stipulated penalties for future reportable emissions events and mandated four environmental improvement projects. The projects would cost about $20 million.

Finding as a threshold matter that not all of Plaintiffs’ counts were actionable, the court declined to assess penalties for any of Plaintiffs’ remaining counts. The Court was not persuaded that the number of events and deviations meant anything: “Despite good practices, it is not possible to operate any facility—especially one as complex as the Complex—in a manner that eliminates all Events and Deviations.” Rather, the Court was persuaded that Exxon’s efforts to conduct an internal investigation and implement corrective actions after every discovery of a potential non-compliance event, which conformed to or exceeded industry practice, meant that Exxon “made good faith efforts to comply with the CAA.” Furthermore, the Court was not persuaded that the violations were serious or lengthy in duration, nor was it persuaded that Exxon gained any economic benefit from non-compliance. The Court entered judgment for Defendants.